Opinionista Magda Wierzycka 11 April 2017

NET1: We have not forgotten you

The dismissal of Pravin Gordhan has been the best news possible for NET1. It has taken the spotlight off the company, as has the love life, apparent lack of honesty and financial affairs of the Social Development Minister Bathabile Dlamini. However, for grant recipients, life is not a Barbara Cartland novel. Hence it is our collective responsibility to continue monitoring NET1’s activities.

The Sassa saga just refuses to die down. Nor should it. NET1 continues to provide the administration of the grant payments via its subsidiary, Cash Payment Services (CPS); it continues to market microloans at astronomical interest rates via MoneyLine, sell funeral insurance via Smart Life and offer its EasyPay Everywhere bank accounts to the poor.  None of that has changed in any meaningful way.

The Constitutional Court has limited the manner in which grant recipients’ data may be used, but nothing stops NET1 sales force agents from approaching grant recipients, nor from setting up MoneyLine “microloan stores” next door to the CPS grant disbursement points.

The dismissal of Pravin Gordhan has been the best news possible for NET1. It has taken the spotlight off the company, as has the love life, apparent lack of honesty and financial affairs of the Social Development Minister Bathabile Dlamini. However, for grant recipients, life is not a Barbara Cartland novel. Hence it is our collective responsibility to continue monitoring NET1’s activities.

On a slightly positive note the company has improved its corporate governance framework by splitting the roles of the Chairman and CEO, something that is customary for most South African companies, but not, apparently, for NET1. Christopher Seabrooke has been appointed as Chairman, while Serge Belamant remains the CEO. What is not reassuring is that Seabrooke has been a director of NET1 since 2005. Hence he would have been well aware of the strategy of the company to date. He also chaired its Nominating and Corporate Governance Committee. Hmm.

On a more positive note, it appears that World Bank’s International Finance Corporation, NET1’s largest shareholder, has finally taken an interest as NET1 announced that it expects IFC to appoint a non-executive director to its Board of Directors. There are also rumours that Belamant has, in fact, resigned as NET1’s CEO, but will remain as CEO of CPS. Let’s see if those are confirmed. No sign of Allan Gray’s involvement as yet. But maybe they are engaging management behind the scenes. The truth is that neither IFC nor Allan Gray will be able to sell their shares easily. NET1 trades on extremely low volumes. Hence, they have no choice but to step in.

On a negative note NET1 has appointed a PR agency. Hence we can expect more professional “spin” when criticised.

Although the Constitutional Court might have clipped the wings of CPS in the Sassa battle, NET1 has not lost the war. Although it faces losing the Sassa contract in 12 months’ time, the company has been preparing for exactly that possibility and has been morphing its business model to one that will allow it to grow and prosper without Sassa.

To put its new plans into effect NET1 has made an offer to buy 15% of Blue Label Telecoms for R2-billion, an offer that expires on 30 June 2017. At the same time Blue Label Telecoms has made an offer, together with other parties, to buy 45% of Cell C, an offer that also expires on 30 June 2017. As an alternative, NET1 has made an offer to buy a direct 15% stake in Cell C for the same R2-billion. NET1 is also in the process of buying 49.6% of DNI-4PL Contracts, the leading distributor of mobile subscriber starter packs for Cell C, which also distributes pre-paid airtime through an extensive network of field operatives and agents.

The business strategy is simple and has been explained by Belamant to the investment community. It is best to, once again, refer to its SEC filings for an explanation:

“We have increasingly focused our South African business on providing financial products and services independently of Sassa through our EasyPay Everywhere bank account and ATM infrastructure. Future increases in our revenues and operating income will depend in part on our ability to continue to expand this business.”

The plan is simply to continue doing what they do, but rather than targeting grant recipients exclusively, the aim is to expand their product offering to all unbanked and under-banked people in South Africa. Hence more vulnerable people could be exploited.

The acquisition of a stake in Cell C is important as it would allow NET1 to market their services via mobile phones. Imagine being offered an Easypay Everywhere bank account and an interest free microloan at a push of a button, with just a “service fee” attached. The same service fee that translates into annual effective interest rates of between 164% to 280%. All the demographic data about the person would have been gathered at the point at which the SIM card is sold, including their income, address and ID number. That is a very scary proposition.

But that is not all. By their own admission the stake in Blue Label would enable NET1 to expand its combination of “a bank account plus a microloan” offering to India and Nigeria, and even Europe.

In Belamant ‘s own words:

“…..then, of course, we would have 60-million or 70-million people that are all seeking exactly the same thing. A basic microfinance which at the end of the day is far more secured when one knows and has visibility over the banking account. So the play in India is no different to what we’ve done in South Africa, is no different to what we intend to do in Nigeria, and it’s no different to what we’re doing in Europe.”

Watch out, India and Nigeria!

According to NET1, as at 30 June 2016, the company employed 5,701 people, with 2,571 involved in the administration of grant payments and transaction processing and 2,576 in the provision of financial services in South Africa. Belamant made it clear that should they lose the Sassa contract, 2,571 people could be redeployed to marketing financial services products. Another scary statistic. More people running around providing unaffordable loans to the poor.

Irrespective of the actions taken by shareholders, it is time for the regulators to step in. The courts must fast-forward the application by the National Credit Regulator to cancel MoneyLine’s microlending licence, while the FSB needs to speed-forward its investigation into Smart Life and its lack of accreditation to render financial services, an investigation triggered by another outstanding journalistic endeavour by amaBhungane’s Craig McKune. The time to act is now. If NET1 is able to start marketing its current offerings, including airtime and electricity, via mobile phones, the ability to stop the tsunami of impoverished people opening EasyPay Everywhere bank accounts and taking out unaffordable loans may be too powerful to stop. DM


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